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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number 000-32599

DIVERSIFIED 2000 FUTURES FUND L.P.

 

(Exact name of registrant as specified in its charter)

 

New York    13-4077759
(State or other jurisdiction of    (I.R.S. Employer
incorporation or organization)    Identification No.)

c/o Ceres Managed Futures LLC

522 Fifth Avenue - 14th Floor

New York, New York 10036

 

(Address of principal executive offices) (Zip Code)

(855) 672-4468

 

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X   No     

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X   No     

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer         Accelerated filer         Non-accelerated filer X    Smaller reporting company     

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes       No X

As of October 31, 2013, 27,894.6635 Limited Partnership Redeemable Units were outstanding.


Table of Contents

DIVERSIFIED 2000 FUTURES FUND L.P.

FORM 10-Q

INDEX

 

              Page
Number

PART I - Financial Information:

  
  Item 1.    Financial Statements:   
     Statements of Financial Condition at September 30, 2013 (unaudited)
and December 31, 2012
   3
     Schedules of Investments at September 30, 2013 (unaudited)
and December 31, 2012
   4 – 5
     Statements of Income and Expenses and Changes in Partners’
Capital for the three and nine months ended September 30, 2013 and
2012 (unaudited)
   6
     Notes to Financial Statements (unaudited)    7 – 19
  Item 2.    Management’s Discussion and Analysis of Financial
Condition and Results of Operations
   20 – 22
  Item 3.    Quantitative and Qualitative Disclosures about Market
Risk
   23 – 29
  Item 4.    Controls and Procedures    30

PART II - Other Information

  
  Item 1.    Legal Proceedings    31 – 36
  Item 1A.    Risk Factors    37
  Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    38
  Item 5.    Other Information    39
  Item 6.    Exhibits    40 – 41

 

2


Table of Contents

PART I

Item 1. Financial Statements

Diversified 2000 Futures Fund L.P.

Statements of Financial Condition

 

    (Unaudited)
September  30,

2013
    December 31,
2012
 

Assets:

   

Investment in Funds, at fair value

  $ 31,433,618      $ 38,052,990   

Cash

    135,863        122,535   
 

 

 

   

 

 

 

Total assets

  $
31,569,481
  
  $ 38,175,525   
 

 

 

   

 

 

 

Liabilities and Partners’ Capital:

   

Liabilities:

   

Accrued expenses:

   

Brokerage fees

  $ 142,063      $ 171,790   

Management fees

    42,113        53,114   

Other

    126,792        107,429   

Redemptions payable

    292,400        923,837   
 

 

 

   

 

 

 

Total liabilities

    603,368        1,256,170   
 

 

 

   

 

 

 

Partners’ Capital:

   

General Partner, 362.6499 unit equivalents outstanding at September 30, 2013 and December 31, 2012

    392,159        419,927   

Limited Partners, 28,273.3545 and 31,520.9475 Redeemable Units outstanding at September 30, 2013 and December 31, 2012, respectively

    30,573,954        36,499,428   
 

 

 

   

 

 

 

Total partners’ capital

    30,966,113        36,919,355   
 

 

 

   

 

 

 

Total liabilities and partners’ capital

  $
31,569,481
  
  $ 38,175,525   
 

 

 

   

 

 

 

Net asset value per unit

  $ 1,081.37      $ 1,157.94   
 

 

 

   

 

 

 

See accompanying notes to financial statements.

 

3


Table of Contents
Statements of Financial Condition

Diversified 2000 Futures Fund L.P.

Schedule of Investments

September 30, 2013

(Unaudited)

 

     Fair Value      % of Partners’
Capital
 

Investment in Funds

     

CMF Aspect Master Fund L.P.

   $ 8,374,504         27.05

CMF Graham Capital Master Fund L.P.

     6,289,916         20.31   

CMF Eckhardt Master Fund L.P.

     7,199,978         23.25   

Waypoint Master Fund L.P.

     3,725,627         12.03   

PGR Master Fund L.P.

     5,843,593         18.87   
  

 

 

    

 

 

 

Total investment in Funds, at fair value

   $ 31,433,618         101.51   
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

4


Table of Contents
Statements of Financial Condition

Diversified 2000 Futures Fund L.P.

Schedule of Investments

December 31, 2012

 

     Fair Value      % of Partners’
Capital
 

Investment in Funds

     

CMF Aspect Master Fund L.P.

   $ 8,928,236         24.18

CMF Graham Capital Master Fund L.P.

     6,316,304         17.11   

CMF SandRidge Master Fund L.P.

     1,949,256         5.28   

CMF Eckhardt Master Fund L.P.

     7,848,705         21.26   

Waypoint Master Fund L.P.

     7,595,874         20.57   

PGR Master Fund L.P.

     5,414,615         14.67   
  

 

 

    

 

 

 

Total investment in Funds, at fair value

   $ 38,052,990         103.07
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

5


Table of Contents

Diversified 2000 Futures Fund L.P.

Statements of Income and Expenses and Changes in Partners’ Capital

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months  Ended
September 30,
 
     2013     2012     2013     2012  

Investment income:

        

Interest income from investment in Funds

   $ 1,206      $ 5,310      $ 7,353      $ 13,963   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Brokerage fees including clearing fees

     457,002        608,668        1,510,695        1,927,957   

Management fees

     128,631        181,780        422,344        568,295   

Other

     49,444        29,915        180,405        157,990   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     635,077        820,363        2,113,444        2,654,242   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (633,871     (815,053     (2,106,091     (2,640,279
  

 

 

   

 

 

   

 

 

   

 

 

 

Trading Results:

        

Net gains (losses) on trading of commodity interests and investment in Funds:

        

Net realized gains (losses) on investment in Funds

     91,227        (149,531     797,511        2,004,244   

Change in net unrealized gains (losses) on investment in Funds

     (722,763     721,529        (930,797     (848,683
  

 

 

   

 

 

   

 

 

   

 

 

 

Total trading results

     (631,536     571,998        (133,286     1,155,561   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (1,265,407     (243,055     (2,239,377     (1,484,718

Redemptions - General Partner

     0        (100,389     0        (100,389

Redemptions - Limited Partners

     (978,238     (1,272,581     (3,713,865     (4,751,960
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in Partners’ Capital

     (2,243,645     (1,616,025     (5,953,242     (6,337,067

Partners’ Capital, beginning of period

     33,209,758        42,528,119        36,919,355        47,249,161   
  

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ Capital, end of period

   $ 30,966,113      $ 40,912,094      $ 30,966,113      $ 40,912,094   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value per unit (28,636.0044 and 33,546.7504 units outstanding at September 30, 2013 and 2012, respectively)

   $ 1,081.37      $ 1,219.55      $ 1,081.37      $ 1,219.55   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per unit *

   $ (43.02   $ (7.83   $ (76.57   $ (44.08
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average units outstanding

     29,254.4014        34,291.9634        30,347.5673        35,502.1467   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Based on change in net asset value per unit.

See accompanying notes to financial statements.

 

6


Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

1. General:

Diversified 2000 Futures Fund L.P. (the “Partnership”) is a limited partnership organized under the partnership laws of the State of New York on August 25, 1999, to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options, swaps and forward contracts. The sectors traded include currencies, energy, grains, indices, U.S. and non-U.S. interest rates, livestock, lumber, metals and softs. The commodity interests that are traded by the Partnership, through its investment in the Funds (as defined in note 5, “Investments in Funds”), are volatile and involve a high degree of market risk.

Between January 31, 2000 (commencement of the initial offering period) and May 30, 2000, 16,045 redeemable units of limited partnership interest (“Redeemable Units”) and 162 general partner unit equivalents were sold at $1,000 per unit. The proceeds of the initial offering were held in an escrow account until May 31, 2000, at which time they were turned over to the Partnership for trading. The Partnership was authorized to sell up to 150,000 Redeemable Units during its initial offering period. As of November 25, 2002, the Partnership was authorized to sell an additional 40,000 Redeemable Units. The Partnership no longer offers Redeemable Units for sale.

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the “General Partner”) and commodity pool operator of the Partnership. The General Partner is wholly owned by Morgan Stanley Smith Barney Holdings LLC (“MSSB Holdings”). MSSB Holdings is ultimately owned by Morgan Stanley. Morgan Stanley is a publicly held company whose shares are listed on the New York Stock Exchange and Morgan Stanley is engaged in various financial services and other businesses. Prior to June 28, 2013, Morgan Stanley indirectly owned a majority equity interest in MSSB Holdings, and Citigroup Inc. indirectly owned a minority equity interest in MSSB Holdings. Prior to July 31, 2009, the date as of which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is Citigroup Inc.

As of September 30, 2013, all trading decisions are made for the Partnership by Aspect Capital Limited (“Aspect”), Graham Capital Management L.P. (“Graham”), Eckhardt Trading Company (“Eckhardt”), Waypoint Capital Management LLC (“Waypoint”) and PGR Capital LLP (“PGR”) (each, an “Advisor”, and collectively, the “Advisors”), each of which is a registered commodity trading advisor. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to each of the Advisors indirectly through investments in the Funds.

The General Partner and each limited partner share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each, except that no limited partner shall be liable for obligations of the Partnership in excess of its capital contribution and profits, if any, or net of distributions and losses, if any.

The accompanying financial statements and accompanying notes are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Partnership’s financial condition at September 30, 2013 and December 31, 2012 and the results of its operations and changes in partners’ capital for the three and nine months ended September 30, 2013 and 2012. These financial statements present the results of interim periods and do not include all of the disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2012.

The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.

Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.

 

7


Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

2. Financial Highlights:

Changes in the net asset value per unit for the three and nine months ended September 30, 2013 and 2012 were as follows:

 

     Three Months Ended
September 30,
    Nine Months  Ended
September 30,
 
     2013     2012     2013     2012  
Net realized and unrealized gains (losses)*    $ (36.97   $ (1.81   $ (56.96   $ (24.06
Interest income      0.04        0.16        0.25        0.40   
Expenses**      (6.09     (6.18     (19.86     (20.42
  

 

 

   

 

 

   

 

 

   

 

 

 
Increase (decrease) for period      (43.02     (7.83     (76.57     (44.08
Net asset value per unit, beginning of year      1,124.39        1,227.38        1,157.94        1,263.63   
  

 

 

   

 

 

   

 

 

   

 

 

 
Net asset value per unit, end of period    $ 1,081.37      $ 1,219.55      $ 1,081.37      $ 1,219.55   
  

 

 

   

 

 

   

 

 

   

 

 

 
* Includes brokerage fees.
** Excludes brokerage fees.

 

     Three Months Ended
September 30,
    Nine Months  Ended
September 30,
 
     2013     2012     2013     2012  

Ratios to average net assets:***

        

Net investment income (loss)

     (7.9 )%      (7.7 )%      (8.1 )%      (7.9 )% 

Incentive fees

     0.0     0.0     0.0     0.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment loss before incentive fees ****

     (7.9 )%      (7.7 )%      (8.1 )%      (7.9 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     7.9     7.7     8.1     8.0

Incentive fees

     0.0     0.0     0.0     0.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     7.9     7.7     8.1     8.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Total return:

        

Total return before incentive fee

     (3.8 )%      (0.6 )%      (6.6 )%      (3.5 )% 

Incentive fees

     0.0     0.0     0.0     0.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Total return after incentive fee

     (3.8 )%      (0.6 )%      (6.6 )%      (3.5 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 
*** Annualized (other than incentive fees).
**** In terest income less total expenses.

The above capital ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the limited partner class using the limited partners’ share of income, expenses and average net assets.

 

3. Trading Activities:

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. However, the Partnership’s investments are in other funds. The results of the Partnership’s trading activities resulting from its investments in the Funds are shown in the Statements of Income and Expenses and Changes in Partners’ Capital.

During the second quarter of 2013, CMF Graham Capital Master Fund L.P. (“Graham Master”) and CMF Aspect Master Fund L.P. (“Aspect Master”) entered into a foreign exchange brokerage account agreement with Morgan Stanley & Co. LLC (“MS&Co”), a registered futures commission merchant. During the second quarter of 2013, Graham Master also entered into a futures brokerage account agreement with MS&Co. Graham Master and Aspect Master commenced foreign exchange trading through an account at MS&Co on or about May 1, 2013 and Graham Master commenced futures trading through accounts at MS&Co on or about June 17, 2013. During the third quarter of 2013, Aspect Master, Waypoint Master Fund L.P. (“Waypoint Master”) and PGR Master Fund L.P. (“PGR Master”) entered into a futures brokerage account agreement with MS&Co and commenced futures trading through accounts at MS&Co on or about July 15, 2013, September 26, 2013 and August 5, 2013, respectively. Effective September 4, 2013, the Partnership entered into a futures brokerage account agreement with MS&Co and began transferring the brokerage account of the Partnership from CGM to MS&Co. The Partnership, through its investment in the Funds, will pay MS&Co trading fees for the clearing and, where applicable, execution of transactions. See Part II, Item 5 for additional information.

The customer agreements between the Partnership and Citigroup Global Markets Inc. (“CGM”) and the Partnership and each of the Funds and CGM and each of the Funds and MS & Co, as applicable, give the Partnership and the Funds the legal right to net unrealized gains and losses on open futures and open forward contracts. The Partnership and the Funds net, for financial reporting purposes, the unrealized gains and losses on open futures and open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (“ASC”) 210-20, “Balance Sheet,” have been met.

All of the commodity interests owned by the Funds are held for trading purposes.

Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance and redemptions.

        On January 1, 2013, the Partnership adopted Accounting Standards Update (“ASU”) 2011-11, “Disclosure about Offsetting Assets and Liabilities” and ASU 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. ASU 2011-11 created a new disclosure requirement about the nature of an entity’s rights to setoff and the related arrangements associated with its financial instruments and derivative instruments, while ASU 2013-01 clarified the types of instruments and transactions that are subject to the offsetting disclosure requirements established by ASU 2011-11. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of these disclosures is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (“IFRS”). The new guidance did not have a significant impact on the Partnership’s financial statements.

 

8


Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

4. Fair Value Measurements:

Partnership’s and the Funds’ Investments. All commodity interests (including derivative financial instruments and derivative commodity instruments), held by the Funds are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in the trading account on the Funds’ Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Funds’ Statements of Income and Expenses and Changes in Partners’ Capital.

Partnership’s and the Funds’ Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management has concluded that based on available information in the marketplace, the Funds’ Level 1 assets and liabilities are actively traded.

GAAP also requires the use of judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. Management has concluded that based on available information in the marketplace, there has not been a significant decrease in the volume and level of activity in the Partnership’s and the Funds’ Level 2 assets and liabilities.

The Partnership and the Funds will separately present purchases, sales, issuances and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.

On October 1, 2012, the Financial Accounting Standards Board (the “FASB”) issued ASU 2012-04, “Technical Corrections and Improvements,” which makes minor technical corrections and clarifications to (ASC) 820, “Fair Value Measurements and Disclosures”. When the FASB issued Statement 157 (codified in ASC 820), it conformed the use of the term “fair value” in certain pre-Codification standards but not others. ASU 2012-04 conforms the term’s use throughout the ASC “to fully reflect the fair value measurement and disclosure requirements” of ASC 820. ASU 2012-04 also amends the requirements that must be met for an investment company to qualify for the exemption from presenting a statement of cash flows. Specifically, it eliminates the requirements that substantially all of an entity’s investments be carried at “market value” and that the investments be highly liquid. Instead, it requires substantially all of the entity’s investments to be carried at “fair value” and classified as Level 1 or Level 2 measurements under ASC 820. The amendments are effective for fiscal periods beginning after December 15, 2012. The adoption of this ASU did not have a material impact on the Partnership’s financial statements.

 

9


Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

The Partnership and the Funds consider prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets and liabilities from observable inputs (Level 2). Investments in funds (other commodity pools) with no rights or obligations inherent within the ownership interest held by the Partnership are priced based on the end of the day net asset value (Level 2). The value of the Partnership’s investments in funds reflects its proportional interest in the funds. As of and for the periods ended September 30, 2013 and December 31, 2012, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). There were no transfers of assets and liabilities between Level 1 and Level 2 during the nine months ended September 30, 2013 and the year ended December 31, 2012.

 

    September 30, 2013     Quoted Prices in Active
Markets for Identical
Assets and Liabilities
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable
Inputs (Level 3)
 

Assets

       

Investment in Funds

  $ 31,433,618      $         —      $ 31,433,618      $         —   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net fair value

  $ 31,433,618      $         —      $ 31,433,618      $         —   
 

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2012     Quoted Prices in Active
Markets for Identical
Assets and Liabilities
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable
Inputs (Level 3)
 

Assets

       

Investment in Funds

  $ 38,052,990      $      $ 38,052,990      $   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net fair value

  $ 38,052,990      $      $ 38,052,990      $   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

10


Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

5. Investments in Funds:

 

On March 1, 2005, the assets allocated to Aspect for trading were invested in CMF Aspect Master Fund L.P. (“Aspect Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 43,434.9465 units of Aspect Master with cash equal to $40,490,895, and a contribution of open commodity futures and forward contracts with a fair value of $2,944,052. Aspect Master was formed in order to permit accounts managed by Aspect using its Diversified Program, a proprietary systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Aspect Master. Individual and pooled accounts currently managed by Aspect, including the Partnership, are permitted to be limited partners of Aspect Master. The General Partner and Aspect believe that trading through this structure should promote efficiency and economy in the trading process.

On April 1, 2006, the assets allocated to Graham for trading were invested in CMF Graham Capital Master Fund L.P. (“Graham Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 41,952.2380 units of Graham Master with cash equal to $41,952,238. Graham Master was formed in order to permit accounts managed by Graham using the K4D - 15V program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Graham Master. Individual and pooled accounts currently managed by Graham, including the Partnership, are permitted to be limited partners of Graham Master. The General Partner and Graham believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Graham agree that Graham will trade the Partnership’s assets allocated to Graham at a level that is up to 1.5 times the amount of the assets allocated.

On April 1, 2007, the assets allocated to SandRidge for trading were invested in CMF SandRidge Master Fund L.P. (“SandRidge Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 7,659.0734 units of SandRidge Master with cash equal to $9,635,703. The Partnership fully redeemed its investment in SandRidge Master on January 31, 2013 for cash equal to $4,938,215.

On April 1, 2008, the assets allocated to Eckhardt for trading were invested in CMF Eckhardt Master Fund L.P. (“Eckhardt Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 10,000.0000 units of Eckhardt Master with cash equal to $10,000,000. Eckhardt Master was formed in order to permit accounts managed by Eckhardt using its Standard Program-Higher Leveraged, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is the also general partner of Eckhardt Master. Individual and pooled accounts currently managed by Eckhardt, including the Partnership, are permitted to be limited partners of Eckhardt Master. The General Partner and Eckhardt believe that trading through this structure should promote efficiency and economy in the trading process.

On March 1, 2010, the assets allocated to Waypoint for trading were invested in Waypoint Master Fund L.P. (“Waypoint Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 5,975.7506 units of Waypoint Master with cash equal to $5,975,751. Waypoint Master was formed in order to permit accounts managed by Waypoint using its Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Waypoint Master. Individual and pooled accounts currently managed by Waypoint, including the Partnership, are permitted to be limited partners of Waypoint Master. The General Partner and Waypoint believe that trading through this structure should promote efficiency and economy in the trading process.

On November 1, 2010, the assets allocated to PGR for trading were invested in PGR Master Fund L.P. (“PGR Master”), a limited partnership organized under the partnership laws of the State of Delaware. The Partnership invested in PGR Master with cash equal to $5,000,000. PGR Master was formed in order to permit accounts managed by PGR using its Mayfair Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of PGR Master. Individual and pooled accounts currently managed by PGR, including the Partnership, are permitted to be limited partners of PGR Master. The General Partner and PGR believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and PGR agreed that PGR will trade the Partnership’s assets allocated to PGR at a level that is up to 1.5 times the amount of the assets allocated.

 

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Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

The General Partner is not aware of any material changes to any of the trading programs discussed above during the fiscal quarter ended September 30, 2013.

Aspect Master’s, Graham Master’s, Eckhardt Master’s, Waypoint Master’s and PGR Master’s (collectively, the “Funds”) trading of futures, forwards, swaps and option contracts, if applicable, on commodities is done primarily on U.S. commodity exchanges and foreign commodity exchanges. Reference to “Funds” included in this report may also include, as relevant, reference to SandRidge Master. During the reporting period, the Funds engaged in such trading through commodity brokerage accounts maintained with CGM and/or Morgan Stanley & Co. LLC (“MS & Co”), as applicable.

        A limited partner of the Funds may withdraw all or part of its capital contribution and undistributed profits, if any, from the Funds as of the end of any day. Such withdraws are classified as a liability when the limited partner elects to redeem and informs the Funds.

Management and incentive fees are charged at the Partnership level. All trading, exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively, the “clearing fees”) are borne by the Funds. All other fees are charged at the Partnership level.

 

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Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

As of September 30, 2013, the Partnership owned approximately 7.8% of Aspect Master, 10.8% of Graham Master, 40.7% of Eckhardt Master, 31.1% of Waypoint Master and 21.3% of PGR Master. As of December 31, 2012, the Partnership owned approximately 6.6% of Aspect Master, 7.4% of Graham Master, 0.7% of SandRidge Master, 42.6% of Eckhardt Master, 33.7% of Waypoint Master and 13.8% of PGR Master. References herein to “Funds” may include SandRidge Master, as relevant. It is the Partnership’s intention to continue to invest in the Funds. The performance of the Partnership is directly affected by the performance of the Funds. Expenses to investors as a result of the investment in the Funds are approximately the same and redemption rights are not affected.

Summarized information reflecting the total assets, liabilities and capital for the Funds is shown in the following tables.

 

    September 30, 2013  
    Total Assets     Total Liabilities     Total Capital  

Aspect Master

  $ 109,047,946      $ 2,021,750      $ 107,026,196   

Graham Master

    58,251,527        223,401        58,028,126   

Eckhardt Master

    17,727,140        45,618        17,681,522   

Waypoint Master

    12,142,415        175,967        11,966,448   

PGR Master

    27,897,803        479,794        27,418,009   
 

 

 

   

 

 

   

 

 

 

Total

  $ 225,066,831      $ 2,946,530      $ 222,120,301   
 

 

 

   

 

 

   

 

 

 

 

    December 31, 2012  
    Total Assets     Total Liabilities     Total Capital  

Aspect Master

  $ 136,219,745      $ 591,506      $ 135,628,239   

Graham Master

    85,313,676        377,625        84,936,051   

SandRidge Master

    294,670,281        2,521,288        292,148,993   

Eckhardt Master

    18,542,577        112,971        18,429,606   

Waypoint Master

    22,633,645        70,047        22,563,598   

PGR Master

    39,466,549        72,252        39,394,297   
 

 

 

   

 

 

   

 

 

 

Total

  $ 596,846,473      $ 3,745,689      $ 593,100,784   
 

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

Summarized information reflecting the net investment income (loss), total trading results and net income (loss) for the Funds is shown in the following tables.

 

     For the three months ended September 30, 2013  
     Net
Investment
Income

(Loss)
    Total Trading
Results
    Net Income
(Loss)
 

Aspect Master

   $ (66,230   $ (7,692,184   $ (7,758,414

Graham Master

     (47,611     2,254,670        2,207,059   

Eckhardt Master

     (38,644     342,869        304,225   

Waypoint Master

     (28,980     (764,582     (793,562

PGR Master

     (18,354     (905,930     (924,284
  

 

 

   

 

 

   

 

 

 

Total

   $ (199,819   $ (6,765,157   $ (6,964,976
  

 

 

   

 

 

   

 

 

 
     For the nine months ended September 30, 2013  
     Net
Investment
Income

(Loss)
    Total Trading
Results
    Net Income
(Loss)
 

Aspect Master

   $ (226,589   $ (6,483,182   $ (6,709,771

Graham Master

     (188,406     6,025,178        5,836,772   

SandRidge Master

     (68,488     129,650        61,162   

Eckhardt Master

     (130,612     (1,033,229     (1,163,841

Waypoint Master

     (94,780     (917,399     (1,012,179

PGR Master

     (105,210     4,944,302        4,839,092   
  

 

 

   

 

 

   

 

 

 

Total

   $ (814,085   $ 2,665,320      $ 1,851,235   
  

 

 

   

 

 

   

 

 

 
     For the three months ended September 30, 2012  
     Net
Investment
Income

(Loss)
    Total Trading
Results
    Net Income
(Loss)
 

Aspect Master

   $ (56,443   $ (3,873,903   $ (3,930,346

Graham Master

     (76,849     1,524,964        1,448,115   

SandRidge Master

     (212,727     (19,078,252     (19,290,979

Eckhardt Master

     (28,830     1,967,793        1,938,963   

Waypoint Master

     (33,044     (451,172     (484,216

PGR Master

     (28,037     615,526        587,489   
  

 

 

   

 

 

   

 

 

 

Total

   $ (435,930   $ (19,295,044   $ (19,730,974
  

 

 

   

 

 

   

 

 

 
     For the nine months ended September 30, 2012  
     Net
Investment
Income

(Loss)
    Total Trading
Results
    Net Income
(Loss)
 

Aspect Master

   $ (178,209   $ (5,359,870   $ (5,538,079

Graham Master

     (337,956     566,270        228,314   

SandRidge Master

     (592,387     29,005,472        28,413,085   

Eckhardt Master

     (118,720     3,074,933        2,956,213   

Waypoint Master

     (120,412     2,339,558        2,219,146   

PGR Master

     (97,360     (6,275,503     (6,372,863
  

 

 

   

 

 

   

 

 

 

Total

   $ (1,445,044   $ 23,350,860      $ 21,905,816   
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

Summarized information reflecting the Partnership’s investment in, and the operations of, the Funds is shown in the following tables.

 

    September 30, 2013     For the three months ended September 30, 2013              
    % of
Partnership’s
    Fair     Income     Expenses    

Net

Income

    Investment     Redemptions  

Investment

  Net Assets     Value     (Loss)     Brokerage Fees     Other     (Loss)     Objective     Permitted  

Aspect Master

    27.05   $ 8,374,504      $ (587,646   $ 4,362      $ 1,039      $ (593,047     Commodity Portfolio        Monthly   

Graham Master

    20.31     6,289,916        244,096        3,882        1,498        238,716        Commodity Portfolio        Monthly   

Eckhardt Master

    23.25     7,199,978        140,334        7,453        8,798        124,083        Commodity Portfolio        Monthly   

Waypoint Master

    12.03     3,725,627        (236,165     2,728        6,403        (245,296     Commodity Portfolio        Monthly   

PGR Master

    18.87     5,843,593        (190,949     3,816        1,051        (195,816     Commodity Portfolio        Monthly   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

    $ 31,433,618      $ (630,330   $ 22,241      $ 18,789      $ (671,360    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     
    September 30, 2013     For the nine months ended September 30, 2013              
    % of
Partnership’s
    Fair     Income     Expenses    

Net

Income

    Investment     Redemptions  

Investment

  Net Assets     Value     (Loss)     Brokerage Fees     Other     (Loss)     Objective     Permitted  

Aspect Master

    27.05   $ 8,374,504      $ (554,411   $ 14,128      $ 4,125      $ (572,664     Commodity Portfolio        Monthly   

Graham Master

    20.31     6,289,916        472,503        15,187        5,050        452,266        Commodity Portfolio        Monthly   

SandRidge Master

    0.00            2,336        256        1,052        1,028        Energy Portfolio        Monthly   

Eckhardt Master

    23.25     7,199,978        (420,118     30,900        25,006        (476,024     Commodity Portfolio        Monthly   

Waypoint Master

    12.03     3,725,627        (279,369     11,362        18,725        (309,456     Commodity Portfolio        Monthly   

PGR Master

    18.87     5,843,593        653,126        12,550        12,307        628,269        Commodity Portfolio        Monthly   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

    $ 31,433,618      $ (125,933   $ 84,383      $ 66,265      $ (276,581    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     
    December 31, 2012     For the three months ended September 30, 2012              
    % of
Partnership’s
    Fair     Income     Expenses    

Net

Income

    Investment     Redemptions  

Investment

  Net Assets     Value     (Loss)     Brokerage Fees     Other     (Loss)     Objective     Permitted  

Aspect Master

    24.18   $ 8,928,236      $ (242,115   $ 3,095      $ 1,730      $ (246,940     Commodity Portfolio        Monthly   

Graham Master

    17.11     6,316,304        79,279        4,682        1,669        72,928        Commodity Portfolio        Monthly   

SandRidge Master

    5.28     1,949,256        (90,917     1,161        549        (92,627     Commodity Portfolio        Monthly   

Eckhardt Master

    21.26     7,848,705        832,889        7,545        5,683        819,661        Commodity Portfolio        Monthly   

Waypoint Master

    20.57     7,595,874        (109,971     6,779        4,543        (121,293     Commodity Portfolio        Monthly   

PGR Master

    14.67     5,414,615        108,143        3,299        2,054        102,790        Commodity Portfolio        Monthly   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

    $ 38,052,990      $ 577,308      $ 26,561      $ 16,228      $ 534,519       
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     
               
    December 31, 2012     For the nine months ended September 30, 2012              
    % of
Partnership’s
    Fair     Income     Expenses    

Net

Income

    Investment     Redemptions  

Investment

  Net Assets     Value     (Loss)     Brokerage Fees     Other     (Loss)     Objective     Permitted  

Aspect Master

    24.18   $ 8,928,236      $ (333,301   $ 8,904      $ 5,965      $ (348,170     Commodity Portfolio        Monthly   

Graham Master

    17.11     6,316,304        (6,998     19,530        3,681        (30,209     Commodity Portfolio        Monthly   

SandRidge Master

    5.28     1,949,256        386,813        3,575        1,803        381,435        Energy Portfolio        Monthly   

Eckhardt Master

    21.26     7,848,705        1,291,250        31,788        20,712        1,238,750        Commodity Portfolio        Monthly   

Waypoint Master

    20.57     7,595,874        685,135        24,165        14,201        646,769        Commodity Portfolio        Monthly   

PGR Master

    14.67     5,414,615        (853,375     11,740        6,730        (871,845     Commodity Portfolio        Monthly   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

    $ 38,052,990      $ 1,169,524      $ 99,702      $ 53,092      $ 1,016,730       
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

15


Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

6. Financial Instrument Risks:

In the normal course of business, the Partnership, through its investments in the Funds, is a party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, swaps and options, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange-traded instruments include futures and certain standardized forward, option and swap contracts. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer, or seller, of an option has unlimited risk. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 16.5% to 35.0% of the Funds’ contracts are traded over the counter.

The risk to the limited partners that have purchased Redeemable Units is limited to the amount of their share of the Partnership’s net assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.

Market risk is the potential for changes in the value of the financial instruments traded by the Funds due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Funds are exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Partnership’s/Funds’ risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Partnership’s/Funds’ risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership/Funds to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership/Funds had credit risk and concentration risk during the reporting period as CGM and/or MS&Co or their affiliates were the counterparties or brokers with respect to the Funds’ assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through CGM/MS & Co the Partnership’s/Funds’ counterparty is an exchange or clearing organization. The Partnership/Funds continue to be subject to such risks.

As both a buyer and seller of options, the Funds pay or receive a premium at the outset and then bear the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Funds to potentially unlimited liability; for purchased options, the risk of loss is limited to the premiums paid. Certain written put options permit cash settlement and do not require the option holder to own the reference asset. The Funds do not consider these contracts to be guarantees.

The General Partner monitors and attempts to control the Funds’ risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Funds may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.

The majority of these financial instruments mature within one year of the inception date. However, due to the nature of the Funds’ businesses, these instruments may not be held to maturity.

 

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Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

7. Critical Accounting Policies:

Use of Estimates. The preparation of financial statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.

Partnership’s and the Funds’ Investments. All commodity interests held by the Partnership (including derivative financial instruments and derivative commodity instruments), through its investment in the Funds, are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Funds’ Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Funds’ Statements of Income and Expenses and Changes in Partners’ Capital.

Partnership’s and the Funds’ Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management has concluded that based on available information in the marketplace, the Funds’ Level 1 assets and liabilities are actively traded.

GAAP also requires the use of judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. Management has concluded that based on available information in the marketplace, there has not been a significant decrease in the volume and level of activity in the Partnership’s and the Funds’ Level 2 assets and liabilities.

The Partnership and the Funds will separately present purchases, sales, issuances and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.

The Partnership and the Funds consider prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available were priced by broker-dealers who derive fair values for those assets and liabilities from observable inputs (Level 2). Investments in funds (other commodity pools) with no rights or obligations inherent within the ownership interest held by the Partnership are priced based on the end of the day net asset value (Level 2). The value of the Partnership’s investments in funds reflects its proportional interest in the funds. As of and for the periods ended September 30, 2013 and December 31, 2012, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). There were no transfers of assets and liabilities between Level 1 and Level 2 during the nine months ended September 30, 2013 and for the year ended December 31, 2012.

 

17


Table of Contents

Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

Futures Contracts. The Funds trade futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (“variation margin”) may be made or received by the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Funds. When the contract is closed, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Funds’ Statements of Income and Expenses and Changes in Partners’ Capital.

Forward Foreign Currency Contracts. Forward foreign currency contracts are those contracts where the Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Forward foreign currency contracts are valued daily, and the Funds’ net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Net realized gains (losses) and changes in net unrealized gains (losses) on forward foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Funds’ Statements of Income and Expenses and Changes in Partners’ Capital.

The Funds do not isolate the portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations due to changes in market prices of investments held. Such fluctuations are included in net income (loss) on investments in the Funds’ Statements of Income and Expenses and Changes in Partners ’ Capital.

London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (“LME”) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Funds are cash settled based on prompt dates published by the LME. Payments (“variation margin”) may be made or received by the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Funds. A contract is considered offset when all long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME. Net realized gains (losses) and changes in net unrealized gains (losses) on metal contracts are included in the Funds’ Statements of Income and Expenses and Changes in Partners ’ Capital.

Options. The Funds may purchase and write (sell) both exchange—listed and OTC options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Funds write an option, the premium received is recorded as a liability in the Funds’ Statements of Financial Condition and marked to market daily. When the Funds purchase an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Net realized gains (losses) and changes in net unrealized gains (losses) on options contracts are included in the Funds’ Statements of Income and Expenses and Changes in Partners’ Capital.

 

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Diversified 2000 Futures Fund L.P.

Notes to Financial Statements

September 30, 2013

(Unaudited)

 

Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses.

GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The General Partner concluded that no provision for income tax is required in the Partnership’s financial statements.

The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2010 through 2012 tax years remain subject to examination by U.S. federal and most state tax authorities. The General Partner does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Subsequent Events. The General Partner evaluates events that occur after the balance sheet date but before financial statements are issued. The General Partner has assessed the subsequent events through the date of issuance and determined that, other than that referenced in Note 3 to the financial statements, there were no subsequent events requiring adjustment of or disclosure in the financial statements.

Recent Accounting Pronouncements. In June 2013, the FASB issued ASU 2013-08, “Financial Services — Investments Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements”. ASU 2013-08 changes the approach to the investment company assessment, requires non-controlling ownership interests in other investment companies to be measured at fair value, and requires additional disclosures about the investment company’s status as an investment company. The amendments are effective for interim and annual reporting periods beginning after December 15, 2013. The Partnership is currently evaluating the impact this pronouncement would have on the financial statements.

Net Income (Loss) per unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 2, “Financial Highlights.”

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources

The Partnership does not engage in sales of goods or services. Its only assets are its investments in the Funds and cash. The Funds’ only assets are their equity in trading accounts, consisting of cash and cash margin, net unrealized appreciation on open futures contracts and net unrealized appreciation on forward contracts, if applicable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership/Funds. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred in the third quarter of 2013.

The Partnership’s capital consists of the capital contributions of the partners as increased or decreased by gains or losses on trading and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

For the nine months ended September 30, 2013, Partnership capital decreased 16.1% from $36,919,355 to $30,966,113. This decrease was attributable to the net loss of $2,239,377, coupled with the redemptions of 3,247.5930 Redeemable Units resulting in an outflow of $3,713,865. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent months.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnership’s significant accounting policies are described in detail in Note 7 of the Financial Statements.

The Partnership and the Funds record all investments at fair value in their financial statements, with changes in fair value reported as a component of net realized gains (losses) and change in net unrealized trading gains (losses) in the Statements of Income and Expenses and Changes in Partners’ Capital.

 

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Table of Contents

Results of Operations

During the third quarter of 2013, the Partnership’s net asset value per unit decreased 3.8% from $1,124.39 to $1,081.37 as compared to a decrease of 0.6% in the third quarter of 2012. The Partnership experienced a net trading loss through its investment in the Funds before brokerage fees and related fees in the third quarter of 2013 of $631,536. Losses were primarily attributable to the Funds trading in currencies, energy, livestock, metals, softs and U.S. and non-U.S. interest rates and were partially offset by gains in grains and indices. The Partnership experienced a net trading gain through its investment in the Funds before brokerage fees and related fees in the third quarter of 2012 of $571,998. Gains were primarily attributable to the Funds trading in currencies, grains, indices and U.S. interest rates and were partially offset by losses in energy, livestock, metals, softs and non-U.S interest rates.

The most significant losses were incurred within the metals sector, primarily during August, from short positions in gold and silver futures as prices increased as political tension over Syria increased demand for the precious metals as a store of value. Additional losses were incurred in August from short positions in copper futures as prices advanced on signs of increased demand for the industrial metal from China. Within the global interest rate markets, losses were recorded in July from short positions in European bond futures as prices rose on speculation central banks in the U.S. and Europe would maintain their economic stimulus programs. Losses in the currency markets were incurred during August from long position in the euro versus the U.S. dollar as the relative value of the European currency advanced after unemployment figures in the Euro-zone region were lower than previously forecast. Additional losses from short positions in the Canadian dollar versus the U.S. dollar were recorded in July as the value of the Canadian currency gained against most of its peers. Within the energy sector, losses were recorded, primarily during September, from long positions in crude oil and its related products as prices declined over fears a looming shutdown of the U.S. government would reduce demand from the world’s largest oil consuming country. A portion of the Partnership’s losses during the quarter was offset by gains recorded in the global stock index sector during July and September from long positions in U.S. and European equity index futures as prices rallied higher following an announcement the U.S. Federal Reserve would delay curtailing its monthly bond buying policy. Within the agricultural markets, gains were achieved in August from long positions in soybean and wheat futures as prices advanced as hot, dry weather in the Midwest threatened to erode U.S. crop yields.

During the Partnership’s nine months ended September 30, 2013, the net asset value per unit decreased 6.6% from $1,157.94 to $1,081.37 as compared to a decrease of 3.5% in the same period of 2012. The Partnership experienced a net trading loss through its investment in the Funds before brokerage fees and related fees in the nine months ended September 30, 2013 of $133,286. Losses were primarily attributable to the Funds trading in currencies, energy, livestock and U.S. and non-U.S. interest rates and were partially offset by gains in grains, indices, metals and softs. The Partnership experienced a net trading gain through its investment in the Funds before brokerage fees and related fees in the nine months ended September 30, 2012 of $1,155,561. Gains were primarily attributable to the Funds trading in energy, and U.S. and non-U.S. interest rates and were partially offset by losses in currencies, grains, indices, livestock, metals and softs

The most significant losses were incurred within the global interest rate sector, primarily during May, from long positions in U.S. and European futures as prices declined on reports signaling the global economic recovery is strengthening. Indicators that the U.S. Federal Reserve would curb its bond buying program further added to the downward price move. Additional losses were recorded during January from long positions in U.S. and European fixed income futures as prices fell amid positive reports after European Central Bank President Mario Draghi said the euro-area economy was on pace to recovery more quickly than previously reported. Within the energy sector, losses were incurred during September from long positions in crude oil and its related products as prices fell on demand uncertainty as the U.S. appeared to be heading towards a government shutdown. Additional losses were incurred during May from long positions in natural gas futures as prices declined towards the end of the month on forecasts of mild weather and bigger-than-expected inventories in the U.S. Additional losses in this sector were incurred from short futures positions in gas oil, heating oil, and Brent crude oil as prices rose after the Syrian conflict spurred concern the flow of supplies from the Middle East may be disrupted. Within the currency sector, losses were incurred during June from long positions in the British pound, euro, and Swiss franc as the value of these European currencies moved lower relative to the U.S. dollar during the latter half of the month on concern of weakness in European economies. The value of the British pound also fell on speculation the Bank of England will make additional asset purchases and devalue the currency further. A portion of the Partnership’s losses during the first nine months of the year were offset by gains achieved within the global stock index sector, primarily during January, from long positions in Asian, U.S., and European equity index futures as prices advanced amid positive global economic sentiment following the resolution of the U.S. ‘fiscal cliff’ crisis. Additional gains were recorded during July and September from long positions in U.S. and European futures as prices moved higher after the U.S. Federal Reserve Bank announced it would delay curtailing its monthly stimulus measures. Within the metals complex, gains were recorded during April and June from short positions in gold and silver futures as priced declined after U.S. economic data topped estimates, eroding the appeal of the precious metals as a store of value. Gains were also experienced in the agricultural sector, primarily during May, from long positions in soybean futures as prices rose on reports of increased global demand for U.S. crop supplies.

Commodity futures markets are highly volatile. Broad and rapid price fluctuations increase the risks involved in commodity trading, but also increase the possibility for profit or loss. The profitability of the Funds depends on the existence of major price trends and the ability of the Advisors to identify those price trends correctly. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisors are able to identify them, the Funds expect to increase capital through operations.

 

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Table of Contents

Interest income on 80% of the Partnership’s allocable portion of the average daily equity maintained in cash in the Funds’ brokerage account during each month was earned at a 30-day U.S. Treasury bill rate determined weekly by CGM and/or MS&Co as applicable based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days. Interest income from investment in the Funds for the three and nine months ended September 30, 2013 decreased by $4,104 and $6,610, respectively, as compared to the corresponding periods in 2012. The decrease in interest income is primarily due to lower average daily equity and lower U.S. Treasury bill rates during the three and nine months ended September 30, 2013, as compared to the corresponding periods in 2012. The amount of interest income earned by the Partnership depends on the average daily equity in the Partnership’s and the Funds’ accounts and upon interest rates over which neither the Partnership/Funds nor CGM/MS & Co has control.

Brokerage fees are calculated on the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net assets values. Brokerage fees for the three and nine months ended September 30, 2013 decreased by $151,666 and $417,262, respectively, as compared to the corresponding periods in 2012. The decrease in brokerage fees is primarily due to lower average net assets during the three and nine months ended September 30, 2013, as compared to the corresponding periods in 2012.

Management fees are calculated as a percentage of the Partnership’s net asset value as of the end of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net assets values. Management fees for the three and nine months ended September 30, 2013 decreased by $53,149 and $145,951, respectively, as compared to the corresponding periods in 2012. The decrease in management fees is primarily due to lower average net assets during the three and nine months ended September 30, 2013, as compared to the corresponding periods in 2012.

Incentive fees are based on the new trading profits generated by each Advisor as defined in the management agreement among the Partnership, the General Partner and each Advisor and are payable annually. There were no incentive fees earned for the three and nine months ended September 30, 2013 and 2012. To the extent an Advisor incurs a loss for the Partnership, the Advisor will not be paid incentive fees until such Advisor recovers any net loss incurred by the Advisor and earns additional new trading profits for the Partnership.

In allocating the assets of the Partnership among the trading Advisors, the General Partner considers each Advisor’s past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets among the trading Advisors and may allocate assets to additional advisors at any time.

As of September 30, 2013 and June 30, 2013, the Partnership’s assets were allocated among the trading Advisors in the following approximate percentages.

 

Advisor

   September 30, 2013   June 30, 2013

Aspect Capital Limited

     $ 8,323,510          27 %     $ 9,068,395          27 %

Graham Capital Management L.P.

     $ 6,262,997          20 %     $ 6,144,599          19 %

Eckhardt Trading Company

     $ 6,865,755          22 %     $ 7,626,455          23 %

Waypoint Capital Management LLC

     $ 3,703,179          12 %     $ 4,023,710          12 %

PGR Capital LLP

     $ 5,810,672          19 %     $ 6,346,599          19 %

 

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Table of Contents
Item 3. Quantitative and Qualitative Disclosures about Market Risk

All of the Partnership’s assets are subject to the risk of trading loss through its investments in the Funds. The Funds are speculative commodity pools. The market sensitive instruments held by them are acquired for speculative trading purposes, and all or substantially all of the Funds’ assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Funds’ main line of business.

The limited partners will not be liable for losses exceeding the current net asset value of their investment.

Market movements result in frequent changes in the fair value of the Funds’ open positions and, consequently, in their earnings and cash balances. The Funds’ market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects of the Funds’ open contracts and the liquidity of the markets in which they trade.

The Funds rapidly acquire and liquidate both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Funds’ past performance is not necessarily indicative of their future results.

“Value at Risk” is a measure of the maximum amount which the Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Funds’ speculative trading and the recurrence in the markets traded by the Funds of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Funds’ experience to date (i.e., “risk of ruin”). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Funds’ losses in any market sector will be limited to Value at Risk or by the Funds’ attempts to manage its market risk.

Exchange margin requirements have been used by the Funds as the measure of their Value at Risk. Margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The margin levels are established by dealer and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probalistic estimate of the maximum expected near-term one-day price fluctuation.

Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The Advisors currently trade the Partnership’s assets indirectly in master fund managed accounts established in the name of the Masters, over which they have been granted limited authority to make trading decisions. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership indirectly, through its investments in the Funds. The remaining trading Value at Risk tables reflect the market sensitive instruments, held by each Fund separately. There have been no material changes in the trading Value at Risk information previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012.

The following tables indicate the trading Value at Risk associated with the Partnership’s open positions by market category as of September 30, 2013 and December 31, 2012. As of September 30, 2013, the Partnership’s total capitalization was $30,966,113.

September 30, 2013

 

Market Sector

   Value at Risk      % of Total
Capitalization
 

Currencies

   $ 1,621,854         5.24

Energy

     318,556         1.03

Grains

     246,833         0.80

Indices

     1,457,433         4.71

Interest Rates U.S.

     131,328         0.42

Interest Rates Non-U.S.

     575,520         1.86

Livestock

     10,551         0.03

Metals

     386,592         1.25

Softs

     165,535         0.53
  

 

 

    

 

 

 

Total

   $ 4,914,202         15.87
  

 

 

    

 

 

 

 

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Table of Contents

As of December 31, 2012, the Partnership’s total capitalization was $36,919,355.

December 31, 2012

 

Market Sector

   Value at Risk     % of Total
Capitalization
 

Currencies

   $ 3,278,875        8.88

Energy

     251,734        0.68

Grains

     152,807        0.42

Indices

     1,407,821        3.81

Interest Rates U.S.

     247,420        0.67

Interest Rates Non-U.S.

     771,616        2.09

Livestock

     8,366        0.02

Lumber

     330        0.00 %* 

Metals

     296,859        0.81

Softs

     122,151        0.33
  

 

 

   

 

 

 

Total

   $ 6,537,979        17.71 % 
  

 

 

   

 

 

 

 

* Due to rounding.

The following tables indicate the trading Value at Risk associated with the Partnership’s investments in the Funds by market category as of September 30, 2013 and December 31, 2012, and the highest, lowest and average value during the three months ended September 30, 2013 and for the twelve months ended December 31, 2012. All open position trading risk exposures of the Funds have been included in calculating the figures set forth below.

As of September 30, 2013, Aspect Master’s total capitalization was $107,026,196. The Partnership owned approximately 7.8% of Aspect Master. As of September 30, 2013, Aspect Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Aspect for trading) was as follows:

September 30, 2013

 

                  Three Months Ended September 30, 2013  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk      Capitalization     Value at Risk      Value at Risk      Value at Risk*  

Currencies

   $ 5,439,159         5.08   $ 7,174,264       $ 3,886,435       $ 5,927,089   

Energy

     789,712         0.74     1,994,003         458,957         1,450,690   

Grains

     925,437         0.87     1,315,867         80,838         951,381   

Indices

     4,194,668         3.92     4,194,668         1,159,866         3,421,268   

Interest Rates U.S.

     325,254         0.30     805,234         196,780         442,560   

Interest Rates Non-U.S.

     2,891,923         2.70     3,714,475         1,822,121         2,826,411   

Livestock

     135,270         0.13     224,235         92,036         139,399   

Metals

     1,973,125         1.84     3,199,261         894,734         2,041,122   

Softs

     537,089         0.50     676,986         463,320         584,814   
  

 

 

    

 

 

         

Total

   $ 17,211,637         16.08        
  

 

 

    

 

 

         

 

 

* Average of month-end Values at Risk.

 

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As of December 31, 2012, Aspect Master’s total capitalization was $135,628,239. The Partnership owned approximately 6.6% of Aspect Master. As of December 31, 2012, Aspect Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Aspect for trading) was as follows:

December 31, 2012

 

Market Sector

   Value at Risk      % of Total
Capitalization
    High
Value at Risk
     Low
Value at
Risk
     Average *
Value at
Risk
 

Currencies

   $ 10,632,678         7.84   $ 11,770,248       $ 4,656,853       $ 9,036,390   

Energy

     1,034,020         0.76     3,158,700         330,466         1,421,376   

Grains

     434,137         0.32     937,803         300,451         540,011   

Indices

     4,333,939         3.20     4,400,956         1,403,855         2,653,071   

Interest Rates U.S.

     434,750         0.32     1,068,175         94,668         812,824   

Interest Rates Non-U.S.

     2,649,060         1.95     6,627,877         2,360,099         3,874,561   

Livestock

     105,850         0.08     214,905         61,040         111,128   

Lumber

     5,000         0.00 %**      7,500         1,100         2,938   

Metals

     1,203,144         0.89     3,472,258         1,203,144         2,219,661   

Softs

     679,573         0.50     847,554         336,425         665,742   
  

 

 

    

 

 

         

Total

   $ 21,512,151         15.86        
  

 

 

    

 

 

         

 

 

* Annual average of month-end Values at Risk.
** Due to rounding.

 

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Table of Contents

As of September 30, 2013, Graham Master’s total capitalization was $58,028,126. The Partnership owned approximately 10.8% of Graham Master. As of September 30, 2013, Graham Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Graham for trading) was as follows:

September 30, 2013

 

     Value at Risk      % of Total
Capitalization
    Three Months Ended September 30, 2013  

Market Sector

        High
Value at Risk
     Low
Value at Risk
     Average
Value at Risk*
 

Currencies

   $ 3,052,535         5.26   $ 5,177,696       $ 2,692,964       $ 3,801,057   

Energy

     1,176,296         2.03     1,447,490         398,490         1,229,839   

Grains

     710,115         1.22     746,819         572,004         674,852   

Indices

     3,804,492         6.56     3,867,614         1,786,311         3,501,816   

Interest Rates U.S.

     314,881         0.54     500,125         219,252         393,014   

Interest Rates Non-U.S.

     764,522         1.32     1,574,911         449,052         1,088,807   

Metals

     1,112,794         1.92     1,979,210         756,560         1,193,904   

Softs

     441,646         0.76     449,032         345,785         436,466   
  

 

 

    

 

 

         

Total

   $ 11,377,281         19.61        
  

 

 

    

 

 

         

 

* Average of month-end Values at Risk.

As of December 31, 2012, Graham Master’s total capitalization was $84,936,051. The Partnership owned approximately 7.4% of Graham Master. As of December 31, 2012, Graham Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Aspect for trading) was as follows:

December 31, 2012

 

     Value at Risk      % of Total
Capitalization
    Twelve Months Ended December 31, 2012  

Market Sector

        High
Value at  Risk
     Low
Value at
Risk
     Average *
Value at
Risk
 

Currencies

   $ 4,886,499         5.75   $ 5,242,762       $ 2,153,005       $ 3,676,056   

Energy

     879,022         1.04     3,576,694         328,716         1,612,982   

Grains

     707,500         0.83     1,548,650         617,775         806,449   

Indices

     4,894,230         5.76     8,403,330         3,650,988         5,248,562   

Interest Rates U.S.

     727,200         0.86     2,173,050         190,045         1,283,420   

Interest Rates Non-U.S.

     2,250,303         2.65     5,723,015         2,250,303         3,953,113   

Metals

     1,161,998         1.37     2,984,515         661,356         1,671,237   

Softs

     372,412         0.44     999,000         372,412         653,258   
  

 

 

    

 

 

         

Total

   $ 15,879,164         18.70        
  

 

 

    

 

 

         
* Annual average of month-end Values at Risk.

 

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As of December 31, 2012, SandRidge Master’s total capitalization was $292,148,993. The Partnership owned approximately 0.7% of SandRidge Master. As of December 31, 2012, SandRidge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to SandRidge for trading) was as follows:

December 31, 2012

 

                  Twelve Months Ended December 31, 2012  

Market Sector

   Value at Risk      % of Total
Capitalization
    High
Value at Risk
     Low
Value at
Risk
     Average
Value at
Risk*
 

Energy

   $ 1,452,965         0.50   $ 21,675,334       $ 1,452,965       $ 12,063,026   
  

 

 

    

 

 

         

Total

   $ 1,452,965         0.50 %         
  

 

 

    

 

 

         

 

* Annual average of month-end Values at Risk.

As of September 30, 2013, Eckhardt Master’s total capitalization was $17,681,522. The Partnership owned approximately 40.7% of Eckhardt Master. As of September 30, 2013, Eckhardt Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Eckhardt for trading) was as follows:

September 30, 2013

 

     Value at Risk      % of Total
Capitalization
    Three months ended September 30, 2013  

Market Sector

        High
Value at Risk
     Low
Value at  Risk
     Average
Value at Risk*
 

Currencies

   $ 609,303         3.44   $ 628,962       $ 198,502       $ 388,188   

Energy

     105,700         0.60     348,390         91,000         208,580   

Grains

     85,882         0.49     119,000         39,342         79,507   

Indices

     558,006         3.16     558,006         253,635         495,819   

Interest Rates U.S.

     17,330         0.10     225,825         17,330         125,494   

Interest Rates Non-U.S.

     269,413         1.52     542,186         139,390         274,089   

Metals

     3,500         0.02     51,600         3,500         3,700   

Softs

     35,244         0.20     67,026         34,031         47,284   
  

 

 

    

 

 

         

Total

   $ 1,684,378         9.53        
  

 

 

    

 

 

         

 

* Average of month-end Values at Risk.

As of December 31, 2012, Eckhardt Master’s total capitalization was $18,429,606. The Partnership owned approximately 42.6% of Eckhardt Master. As of December 31, 2012, Eckhardt Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Graham for trading) was as follows:

December 31, 2012

 

                  Twelve Months Ended December 31, 2012  

Market Sector

   Value at Risk      % of Total
Capitalization
    High
Value at  Risk
     Low
Value
at Risk
     Average
Value

at Risk*
 

Currencies

   $ 886,487         4.81   $ 1,330,124       $ 345,179       $ 861,941   

Energy

     146,250         0.79     7,866,490         49,900         261,682   

Grains

     106,507         0.58     244,448         45,898         169,313   

Indices

     533,624         2.90     675,308         8,000         432,089   

Interest Rates U.S.

     171,800         0.93     626,375         109,035         357,245   

Interest Rates Non-U.S.

     286,004         1.55     923,168         137,819         510,969   

Metals

     146,521         0.80     316,501         25,650         153,467   

Softs

     9,000         0.05     111,543         5,800         45,908   
  

 

 

    

 

 

         

Total

   $ 2,286,193         12.41        
  

 

 

    

 

 

         

 

* Annual average of month-end Values at Risk.

 

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As of September 30, 2013, Waypoint Master’s total capitalization was $11,966,448. The Partnership owned approximately 31.1% of Waypoint Master. As of September 30, 2013, Waypoint Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Waypoint for trading) was as follows:

September 30, 2013

 

     Value at Risk      % of Total
Capitalization
    Three Months Ended September 30, 2013  

Market Sector

        High
Value at Risk
     Low
Value at Risk
     Average
Value at Risk*
 

Currencies

   $ 1,689,071         14.11   $ 3,977,328       $ 254,726       $ 680,930   

Energy

     63,140         0.53     63,140         12,900         42,413   

Indices

     238,964         2.00     291,592         80,283         168,039   

Interest Rates U.S.

     80,190         0.67     80,190         4,500         26,730   

Interest Rates Non-U.S.

     81,671         0.68     427,571         11,009         154,081   

Softs

     38,115         0.32     47,250         23,250         20,455   
  

 

 

    

 

 

         

Total

   $ 2,191,151         18.31        
  

 

 

    

 

 

         

 

* Average of month-end Values at Risk.

As of December 31, 2012, Waypoint Master’s total capitalization was $22,563,598. The Partnership owned approximately 33.7% of Waypoint Master. As of December 31, 2012, Waypoint Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Waypoint for trading) was as follows:

December 31, 2012

 

                  Twelve Months Ended December 31, 2012  

Market Sector

   Value at Risk      % of Total
Capitalization
    High
Value at  Risk
     Low
Value at  Risk
     Average *
Value at Risk
 

Currencies

   $ 5,181,537         22.96   $ 9,805,183       $ 801,893       $ 4,924,577   

Energy

     53,750         0.24     212,200         13,300         61,629   

Indices

     686,879         3.04     1,579,713         84,388         766,988   

Interest Rates U.S.

     75,075         0.33     910,900         375         220,475   

Interest Rates Non-U.S.

     228,670         1.01     1,960,746         42,234         551,129   

Metals

     80,325         0.36     476,500         7,500         84,110   

Softs

     48,600         0.22     287,600         31,200         107,842   
  

 

 

    

 

 

         

Total

   $ 6,354,836         28.16        
  

 

 

    

 

 

         

 

* Annual average of month-end Values at Risk.

As of September 30, 2013, PGR Master’s total capitalization was $27,418,009. The Partnership owned approximately 21.3% of PGR Master. As of September 30, 2013, PGR Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to PGR for trading) was as follows:

September 30, 2013

 

                  Three Months Ended September 30, 2013  

Market Sector

   Value at Risk      % of Total
Capitalization
    High
Value at  Risk
     Low
Value at  Risk
     Average
Value at  Risk*
 

Currencies

   $ 444,311         1.62   $ 511,670       $ 225,587       $ 356,564   

Energy

     315,783         1.15     621,971         139,760         428,038   

Grains

     295,785         1.08     363,285         169,280         284,831   

Indices

     1,962,146         7.16     2,128,792         1,254,790         1,957,725   

Interest Rates U.S.

     187,601         0.68     299,403         84,593         197,737   

Interest Rates Non-U.S.

     621,271         2.27     789,526         258,607         587,135   

Metals

     521,510         1.90     1,299,200         501,325         639,512   

Softs

     233,549         0.85     246,572         161,924         218,859   
  

 

 

    

 

 

         

Total

   $ 4,581,956         16.71        
  

 

 

    

 

 

         

 

* Average of month-end Values at Risk.

 

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As of December 31, 2012, PGR Master’s total capitalization was $39,394,297. The Partnership owned approximately 13.8% of PGR Master. As of December 31, 2012, PGR Master’s value at Risk for its assets (including the portion of the Partnership’s assets allocated to PGR for trading) was as follows:

December 31, 2012

 

                  Twelve Months Ended December 31, 2012  

Market Sector

   Value at Risk      % of Total
Capitalization
    High
Value at Risk
     Low
Value at Risk
     Average
Value at Risk*
 

Currencies

   $ 664,462         1.69   $ 1,035,798       $ 403,280       $ 634,175   

Energy

     201,844         0.51     1,418,646         160,426         732,846   

Grains

     191,500         0.49     358,000         45,212         192,878   

Indices

     2,179,752         5.53     2,587,014         1,081,839         1,843,311   

Interest Rates U.S.

     481,350         1.22     1,040,100         481,350         668,688   

Interest Rates Non -U.S.

     1,676,492         4.26     4,045,515         1,676,492         2,339,198   

Livestock

     10,000         0.03     49,200         1,000         18,317   

Metals

     304,175         0.77     1,007,250         63,200         411,946   

Softs

     213,972         0.54     418,734         133,869         243,422   
  

 

 

    

 

 

         

Total

   $ 5,923,547         15.04        
  

 

 

    

 

 

         

 

* Annual average of month-end Values at Risk

 

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Item 4. Controls and Procedures

The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods expected in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President and Chief Financial Officer (“CFO”) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.

The General Partner is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnership’s external disclosures.

The General Partner’s President and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2013 and, based on that evaluation, the General Partner’s President and CFO have concluded that at that date, the Partnership’s disclosure controls and procedures were effective.

The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s President and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. These controls include policies and procedures that:

 

   

pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;

 

   

provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the Partnership’s receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and

 

   

provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.

There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended September 30, 2013 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

This section describes the major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which MS&Co or its subsidiaries is a party or to which any of their property is subject. There are no material legal proceedings pending against the Partnership or the General Partner.

On June 1, 2011, Morgan Stanley & Co. Incorporated converted from a Delaware corporation to a Delaware limited liability company. As a result of that conversion, Morgan Stanley & Co. Incorporated is now named Morgan Stanley & Co. LLC.

MS&Co is a wholly-owned, indirect subsidiary of Morgan Stanley (“MS”), a Delaware holding company. MS files periodic reports with the Securities and Exchange Commission as required by the Exchange Act, which include current descriptions of material litigation and material proceedings and investigations, if any, by governmental and/or regulatory agencies or self-regulatory organizations concerning MS and its subsidiaries, including MS&Co. As a consolidated subsidiary of MS, MS&Co does not file its own periodic reports with the SEC that contain descriptions of material litigation, proceedings and investigations. As a result, we refer you to the “Legal Proceedings” section of MS’s SEC 10-K filings for 2012, 2011, 2010, 2009, and 2008.

In addition to the matters described in those filings, in the normal course of business, each of MS and MS&Co has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Each of MS and MS&Co is also involved, from time to time, in investigations and proceedings by governmental and/or regulatory agencies or self-regulatory organizations, certain of which may result in adverse judgments, fines or penalties. The number of these investigations and proceedings has increased in recent years with regard to many financial services institutions, including MS and MS&Co.

MS&Co is a Delaware corporation with its main business office located at 1585 Broadway, New York, New York 10036. Among other registrations and memberships, MS&Co is registered as a futures commission merchant and is a member of the National Futures Association.

There have been no material administrative, civil or criminal actions within the past five years against MS&Co or any of its individual principals and no such actions are currently pending, except as follows.

On June 2, 2009, MS executed a final settlement with the Office of the New York State Attorney General (“NYAG”) in connection with its investigation relating to the sale of auction-rate securities (“ARS”). MS agreed, among other things to: (1) repurchase at par illiquid ARS that were purchased by certain retail clients prior to February 13, 2008; (2)

 

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pay certain retail clients that sold ARS below par the difference between par and the price at which the clients sold the securities; (3) arbitrate, under special procedures, claims for consequential damages by certain retail clients; (4) refund refinancing fees to certain municipal issuers of ARS; and (5) pay a total penalty of $35 million. On August 13, 2008, MS reached an agreement in principle on substantially the same terms with the Office of the Illinois Secretary of State, Securities Department (on behalf of a task force of other states under the auspices of the North American Securities Administrators Association) that would settle their investigations into the same matters.

On June 5, 2012, MS&Co consented to and became the subject of an Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act, as amended, Making Findings and Imposing Remedial Sanctions by the Commodity Futures Trading Commission (the “CFTC”) to resolve allegations related to the failure of a salesperson to comply with exchange rules that prohibit off-exchange futures transactions unless there is an Exchange for Related Position (“EFRP”). Specifically, the CFTC found that from April 2008 through October 2009, MS&Co violated Section 4c(a) of the Commodity Exchange Act and Commission Regulation 1.38 by executing, processing and reporting numerous off-exchange futures trades to the Chicago Mercantile Exchange (“CME”) and Chicago Board of Trade (“CBOT”) as EFRPs in violation of CME and CBOT rules because those trades lacked the corresponding and related cash, OTC swap, OTC option, or other OTC derivative position. In addition, the CFTC found that MS&Co violated CFTC Regulation 166.3 by failing to supervise the handling of the trades at issue and failing to have adequate policies and procedures designed to detect and deter the violations of the Act and Regulations. Without admitting or denying the underlying allegations and without adjudication of any issue of law or fact, MS&Co. accepted and consented to entry of findings and the imposition of a cease and desist order, a fine of $5,000,000, and undertakings related to public statements, cooperation and payment of the fine. MS&Co entered into corresponding and related settlements with the CME and CBOT in which the CME found that MS&Co violated CME Rules 432.Q and 538 and fined MS&Co $750,000 and CBOT found that MS&Co violated CBOT Rules 432.Q and 538 and fined MS&Co $1,000,000.

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against MS&Co and other defendants in the Superior Court of the State of California. These actions are styled Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al., and Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al., respectively. Amended complaints filed on June 10, 2010 allege that defendants made untrue statements and material omissions in connection with the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by MS&Co in these cases was approximately $704 million and $276 million, respectively. The complaints raise claims under both the federal securities laws and California law and seek, among other things, to rescind the plaintiff’s purchase of such certificates. On July 29, 2011 and September 8, 2011, the court presiding over both actions sustained defendants’ demurrers with respect to claims brought under the Securities Act of 1933, as amended, and overruled defendants’ demurrers with respect to

 

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all other claims. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $326 million, and the certificates had incurred actual losses of approximately $4 million. Based on currently available information, MS&Co believes it could incur a loss for this action up to the difference between the $326 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co, plus pre- and post-judgment interest, fees and costs. MS&Co may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On July 9, 2010 and February 11, 2011, Cambridge Place Investment Management Inc. filed two separate complaints against MS&Co and other defendants in the Superior Court of the Commonwealth of Massachusetts, both styled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al. The complaints assert claims on behalf of certain clients of plaintiff’s affiliates and allege that defendants made untrue statements and material omissions in the sale of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by MS&Co or sold to plaintiff’s affiliates’ clients by MS&Co in the two matters was approximately $263 million. Plaintiff filed amended complaints on October 14, 2011, which raise claims under the Massachusetts Uniform Securities Act and seek, among other things, to rescind the plaintiff’s purchase of such certificates. Defendants’ motions to dismiss the amended complaints, with respect to plaintiff’s standing to bring suit and for failure to state a claim upon which relief can be granted were denied in March and October 2012, respectively. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $105 million, and the certificates had incurred actual losses of approximately $109 million. Based on currently available information, MS&Co believes it could incur a loss for these actions of up to the difference between the $105 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co, plus pre- and post-judgment interest, fees and costs. MS&Co may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against MS&Co, which is styled China Development Industrial Bank v. Morgan Stanley & Co. Incorporated et al., which is pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY, NY County”). The complaint relates to a $275 million credit default swap referencing the super senior portion of the STACK 2006-1 CDO. The complaint asserts claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that MS&Co misrepresented the risks of the STACK 2006-1 CDO to CDIB, and that MS&Co knew that the assets backing the CDO were of poor quality when it entered into the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that CDIB alleges it has already lost under the credit default swap, rescission of CDIB’s obligation to pay an additional $12 million, punitive damages, equitable relief, fees and costs. On February 28, 2011, the court presiding over this action denied

 

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MS&Co’s motion to dismiss the complaint and on March 21, 2011, MS&Co appealed that order. On July 7, 2011, the appellate court affirmed the lower court’s decision denying the motion to dismiss. Based on currently available information, MS&Co believes it could incur a loss of up to approximately $240 million plus pre- and post-judgment interest, fees and costs.

On October 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against MS&Co and other defendants in the Circuit Court of the State of Illinois styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by MS&Co in this action was approximately $203 million. The complaint raises claims under Illinois law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On March 24, 2011, the court granted plaintiff leave to file an amended complaint. The defendants’ motion to dismiss the amended complaint was denied on September 19, 2012. MS&Co filed its answer on December 21, 2012. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $98 million and certain certificates had incurred actual losses of approximately $1 million. Based on currently available information, MS&Co believes it could incur a loss in this action up to the difference between the $98 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co, plus pre- and post-judgment interest, fees and costs. MS&Co may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against MS&Co and other defendants in the Court of Common Pleas in Ohio, styled Western and Southern Life Insurance Company, et al. v. Morgan Stanley Mortgage Capital Inc., et al. An amended complaint was filed on April 2, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of the certificates allegedly sold to plaintiffs by MS&Co was approximately $153 million. The amended complaint raises claims under the Ohio Securities Act, federal securities laws, and common law and seeks, among other things, to rescind the plaintiffs’ purchases of such certificates. On May 21, 2012, MS&Co filed a motion to dismiss the amended complaint, which motion was denied on August 3, 2012. The court has set a trial date in May 2015. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $119 million, and the certificates had incurred actual losses of approximately $1 million. Based on currently available information, MS&Co believes it could incur a loss in this action up to the difference between the $119 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co, plus post-judgment interest, fees and costs. MS&Co may be entitled to an offset for interest received by the plaintiff prior to a judgment.

 

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On September 2, 2011, the Federal Housing Finance Agency (“FHFA”), as conservator for Fannie Mae and Freddie Mac, filed 17 complaints against numerous financial services companies, including MS&Co. A complaint against MS&Co and other defendants was filed in the Supreme Court of NY, styled Federal Housing Finance Agency, as Conservator v. Morgan Stanley et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to Fannie Mae and Freddie Mac of residential mortgage pass-through certificates with an original unpaid balance of approximately $11 billion. The complaint raises claims under federal and state securities laws and common law and seeks, among other things, rescission and compensatory and punitive damages. On September 26, 2011, defendants removed the action to the United States District Court for the Southern District of New York. On July 13, 2012, MS& Co. filed a motion to dismiss the complaint, which motion was denied in large part on November 19, 2012. Trial is currently scheduled to begin in January 2015. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $2.8 billion, and the certificates had incurred actual losses of approximately $68 million. Based on currently available information, MS&Co believes it could incur a loss in this action up to the difference between the $2.8 billion unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co, plus pre- and post-judgment interest, fees and costs. MS&Co may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On April 25, 2012, Metropolitan Life Insurance Company and certain affiliates filed a complaint against MS&Co and certain affiliates in the Supreme Court of NY styled Metropolitan Life Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on June 29, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. was approximately $758 million. The amended complaint raises common law claims of fraud, fraudulent inducement, and aiding and abetting fraud and seeks, among other things, rescission, compensatory and/or rescissionary damages, as well as punitive damages, associated with plaintiffs’ purchases of such certificates. On September 21, 2012, MS&Co filed a motion to dismiss the amended complaint, which was granted in part and denied in part on July 16, 2013. Defendants filed a notice of appeal of that decision on August 16, 2013. Following that decision, the total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co was approximately $656 million. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates remaining at issue in this case was approximately $324 million, and the certificates incurred actual losses of approximately $35 million. Based on currently available information, MS&Co believes it could incur a loss up to the difference between the $324 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co, plus pre- and post-judgment interest, fees and costs. MS&Co may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

 

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On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against MS&Co and certain affiliates in the Superior Court of the State of New Jersey styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co is approximately $1 billion. The complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud and tortious interference with contract and seeks, among other things, compensatory damages, punitive damages, rescission and rescissionary damages associated with plaintiffs’ purchases of such certificates. On October 16, 2012, plaintiffs filed an amended complaint which, among other things, increases the total amount of the certificates at issue by approximately $80 million, adds causes of action for fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey RICO statute, and includes a claim for treble damages. On March 15, 2013, defendants’ motion to dismiss was denied. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $663 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co believes it could incur a loss in this action up to the difference between the $663 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co, plus pre- and post-judgment interest, fees and costs. MS&Co may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

Additional lawsuits containing claims similar to those described above may be filed in the future. In the course of its business, MS&Co, as a major futures commission merchant and broker-dealer, is party to various civil actions, claims and routine regulatory investigations and proceedings that the General Partner believes do not have a material effect on the business of MS&Co. MS&Co may establish reserves from time to time in connections with such actions.

 

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Table of Contents
Item 1A. Risk Factors.

There have been no material changes to the risk factors set forth under Part 1, Item 1A. “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and under Part II, Item 1A. “Risk Factors” in the Partnership’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Partnership no longer offers Redeemable Units for sale.

The following chart sets forth the purchases of Redeemable Units by the Partnership.

 

Period  

(a) Total Number

of Shares

(or Redeemable

Units) Purchased*

 

(b) Average

Price Paid per

Share (or

Redeemable Unit)**

 

(c) Total Number

of Shares (or

Redeemable Units)
Purchased as Part

of Publicly Announced

Plans or Programs

 

(d) Maximum Number

(or Approximate

Dollar Value) of Shares
(or Redeemable Units) that

May Yet Be

Purchased Under the

Plans or Programs

July 1, 2013 —

July 31, 2013

  214.7550      $  1,111.01   N/A       N/A

August 1, 2013 —

August 31, 2013

  414.6210      $  1,078.68   N/A       N/A

September 1, 2013 —

September 30, 2013

  270.3980      $  1,081.37   N/A       N/A
    1,073.1210      $  1,087.20        

* Generally, limited partners are permitted to redeem their Redeemable Units as of the end of each month on three business days’ notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for limited partners.

** Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day. No fee will be charged for redemptions.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures

Not Applicable.

 

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Item 5. Other Information

Eckhardt Master entered into a futures account agreement with MS&Co and commenced trading through an account at MS&Co on or about October 4, 2013.

Effective October 1, 2013, the Partnership ceased paying a brokerage fee to CGM. Also effective October 1, 2013, the Partnership entered into a selling agreement with Morgan Stanley Smith Barney LLC (d/b/a Morgan Stanley Wealth Management). Pursuant to the selling agreement, Morgan Stanley Wealth Management will receive a selling agent fee equal to 0.45% (5.4% per year) of the Partnership’s month-end net assets. The selling agent fee received by Morgan Stanley Wealth Management will be shared with the properly registered/licensed financial advisers of Morgan Stanley Wealth Management who sold redeemable units in the Partnership.

 

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Item 6. Exhibits

3.1 Limited Partnership Agreement (filed as Exhibit 3.1 to the Registration Statement on Form S-1 filed on September 23, 1999 and incorporated herein by reference).

3.2 Certificate of Limited Partnership of the Partnership as filed in the Office of the Secretary of State of the State of New York on August 25, 1999 (filed as Exhibit 3.2 to the Registration Statement on Form S-1 filed on September 23, 1999 and incorporated herein by reference).

(a) Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated May 21, 2003 (filed as Exhibit 3.2(a) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).

(b) Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated September 21, 2005 (filed as Exhibit 3.2(b) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).

(c) Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 3.2(c) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).

(d) Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated August 27, 2008 (filed as Exhibit 99.1 to the Form 8-K filed on September 2, 2008 and incorporated herein by reference).

(e) Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated September 24, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on September 30, 2009 and incorporated herein by reference).

(f) Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated June 30, 2010 (filed as Exhibit 3.1(f) to the Form 8-K filed on July 2, 2010 and incorporated herein by reference).

(g) Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated September 2, 2011 (filed as Exhibit 3.1 to the Form 8-K filed on September 7, 2011 and incorporated herein by reference).

(h) Certificate of Amendment to the Certificate of Limited Partnership dated August 7, 2013 (Filed as Exhibit 3.2(H) to the Form 10-Q filed on August 14, 2013 and incorporated herein by reference).

10.1 (a) Form of Customer Agreement between the Partnership and Salomon Smith Barney Inc. (filed as Exhibit 10.3 to the Registration Statement on Form S-1 filed on September 23, 1999 and incorporated herein by reference).

(b) Commodity Futures Customer Agreement between the Partnership and MS&Co., effective September 4, 2013 (filed herewith).

10.2 Form of Escrow Agreement among the Partnership, European American Bank, Smith Barney Futures Management Inc. and Salomon Smith Barney Inc. (filed as Exhibit 10.3 to the Registration Statement on Form S-1 filed on September 23, 1999 and incorporated herein by reference).

(a) Form of Letter Amending Escrow Agreement among the Partnership, European American Bank, Smith Barney Futures Management Inc. and Salomon Smith Barney Inc. (filed as Exhibit 10.3A to the Registration Statement on Form S-1 filed on November 12, 2002 and incorporated herein by reference).

10.3 (a) Form of Selling Agreement among the Partnership, Smith Barney Futures Management LLC and Salomon Smith Barney Inc. (filed as Exhibit 1.1 to the Registration Statement on Form S-1 filed on November 12, 2002 and incorporated herein by reference).

10.4 Alternative Investments Selling Agent Agreement between the Partnership the General Partner and Morgan Stanley Wealth Management, effective October 1, 2013 (filed herewith).

10.5 Amended and Restated Advisory Agreement among the Partnership, the General Partner and SandRidge Capital, LP, dated June 30, 2007 (filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on August 14, 2007 and incorporated herein by reference).

(a) Letter from the General Partner extending Advisory Agreement between the General Partner and SandRidge Capital, L.P. for 2012, dated June 1, 2012 (filed as Exhibit 10.5(a) to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.6 Management Agreement among the Partnership, the General Partner and Aspect Capital Limited, dated January 3, 2002 (filed as Exhibit 99 to the Annual Report on Form 10-K filed on March 27, 2003 and incorporated herein by reference).

(a) Letter from the General Partner extending Management with Aspect Capital Limited for 2012, dated June 1, 2012 (filed as Exhibit 10.6(a) to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).

 

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10.7 Management Agreement among the Partnership, the General Partner and Eckhardt Trading Company, dated March 31, 2008 (filed as Exhibit 10 to the Quarterly Report on Form 10-Q filed on August 14, 2008 and incorporated herein by reference).

(a) Letter from the General Partner extending Management Agreement with Eckhardt Trading Company for 2012, dated June 1, 2012 (filed as Exhibit 10.7(a) to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.8 Management Agreement among the Partnership, the General Partner and Waypoint Capital Management LLC, dated February 25, 2010 (filed as Exhibit 10.8 to the Quarterly Report on Form 10-Q filed on May 17, 2010 and incorporated herein by reference).

(a) Letter from the General Partner extending Management Agreement with Waypoint Capital Management LLC for 2012, dated June 1, 2012 (filed as Exhibit 10.10(a) to the Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.9 Management Agreement among the Partnership, the General Partner and Graham Capital Management, L.P., dated June 11, 2001 (filed as Exhibit 10 to the Annual Report on Form 10-K filed on March 27, 2002 and incorporated herein by reference).

(a) Letter from the General Partner extending Management Agreement with Graham Capital Management, L.P. for 2012, dated June 1, 2012 (filed as Exhibit 10.9(a) to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.10 Amended and Restated Management Agreement among the Partnership, the General Partner and PGR Capital LLP, (filed as Exhibit 10.10 to the Quarterly Report on Form 10-Q filed on August 15, 2011 and incorporated herein by reference).

(a) Letter from the General Partner extending Management Agreement with PGR Capital LLP for 2012, dated June 1, 2012 (filed as Exhibit 10.11(a) to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).

Exhibit 31.1 — Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director) (filed herewith).

Exhibit 31.2 — Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer) (filed herewith).

Exhibit 32.1 — Section 1350 Certification (Certification of President and Director) (filed herewith).

Exhibit 32.2 — Section 1350 Certification (Certification of Chief Financial Officer) (filed herewith).

 

101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

DIVERSIFIED 2000 FUTURES FUND L.P.
By:   Ceres Managed Futures LLC  
  (General Partner)  
By:  

/s/ Alper Daglioglu

 
  Alper Daglioglu  
  President and Director  
Date:  

November 14, 2013

 
By:  

/s/ Alice Lonero

 
  Alice Lonero  
  Chief Financial Officer  
  (Principal Accounting Officer)  
Date:  

November 14, 2013

 

 

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